United States markets will today set the pace after European sharemarkets tumbled yesterday on fears bail-outs for some euro zone countries are less certain and could unravel.
US banking lawsuits, political tension in Germany, and Greece descending into further economic problems all compounded to magnify market losses around the globe.
New Zealand dollar volatility was widespread, falling from a Monday high of US84.52 down to US82.62 yesterday, then rebounding to trade above US83c during the afternoon.
Gold reflected the global sentiments, rising again above $US1900 ($NZ2289), as investors switched from riskier currencies and back to safe-haven investments.
After Asian markets closed down on Monday, with Japan's Nikkei 1.9% off, the Stoxx Europe 600 went on to fall 4.1% by close, the German Dax 30 a massive 5.3%, France's Cac 40 down 4.7% and the United Kingdom FTSE 100 was down 3.6%.
The US markets were closed for a statutory holiday yesterday, but were expected to dive when they reopened.
Forsyth Barr broker Suzanne Kinnaird said European efforts to contain the region's debt crisis were at risk of unravelling as the demands of individual nations for collateral, Greece's deteriorating economic predicament and wavering commitment to austerity packages from euro members, such as Italy, put any recovery in doubt.
"The cost of insuring against default on European sovereign and financial debt surged to record highs on concern the debt crisis is worsening," Ms Kinnaird said.
Craigs Investment Partners broker Chris Timms said the Shanghai Composite, which lost 3.2% last week, closed at its lowest since July last year.
While New Zealand and Australian markets had shown "resilience" in the face of other market losses - down just 0.5% and 1% respectively during afternoon trading yesterday - the major driver would be the reopening of the US markets.
So, too, would a speech later in the week by US President Barack Obama on plans to tackle the ailing economy.
European banking stocks were among the hardest hit, partly because last Friday the US Government said it would sue 17 financial firms for selling to mortgage lending giants Fannie Mae and Freddie Mac.
Billions of dollars worth of mortgage-backed securities, which turned toxic when the housing market collapsed, were sold to the lending houses, with losses on about $200 billion of the sub-prime mortgage bonds.
The newest concerns over European political unity, as the zone looks to contain the region's debt crisis, were driven last weekend when German Chancellor Angela Merkel's coalition lost ground in a state election on Sunday, Reuters reported.
That goal will be further tested this week, with a court ruling due over German involvement in the region's bail-out fund, divisions in the European Central Bank (ECB) over bond buying and uncertainty over private sector involvement in the second Greek bail-out.
ECB president Jean-Claude Trichet yesterday called for the fund to be "immediately" strengthened, and urged more structural reforms to boost the flagging financial sector.
